THE IMPACT of the US reciprocal tariffs on the Philippines will likely be minimal, the Department of Economy, Planning, and Development (DEPDev) said, but noted the country will still need to enhance its investment environment to benefit from shifting trade paths.
“We find the overall impact on the economy was minimal,” DEPDev Secretary Arsenio M. Balisacan told reporters on the sidelines of National Innovation Day on Wednesday.
“In fact, it was even slightly positive, but very minimal. And the reason for that is that we had some of the trade diversion benefits because we had lower tariffs (than) our neighbors,” he added.
The United States set a 17% reciprocal tariff on the Philippines, the second lowest in Southeast Asia.
While the implementation of the higher duties was suspended until July, US trading partners are currently subject to a blanket 10% tariff.
Though shifting trade routes would work in the favor of the Philippines, Mr. Balisacan said the country is still not fully equipped to capitalize on this.
“For us to be able to respond to diversion benefits, we should be able to have so much capacities. But we don’t have that. We need investments to expand existing capacities,” he said.
“That’s why the overall net effect is not that high. The overall net effect is quite minimal.”
“But that doesn’t take into account the longer term because if the trade uncertainty continues, then the global economy will further slow down. That would come back to us also because we are part of the global supply chain,” he added.
Despite many multilaterals slashing the Philippines’ growth forecast, the country is still in a better position compared with its neighbors, Mr. Balisacan said.
“If you look at it from that perspective, we are so much better off than many of the countries around us… But that, to me, does not give me space for complacency because the challenge is when the global economy recovers… will we be ready? Will we be able to export a lot? Will we be able to get those investments? That’s what we must be thinking about.”
The country needs to significantly enhance the environment for investments, he added.
“Regardless if there are reciprocal tariffs or not, we know our constraints, we know what’s limiting the economy from growing faster,” Mr. Baliscan said.
Based on the latest edition of Kearney’s FDI Confidence Index, the Philippines fell three spots to 16th place out of 25 emerging markets. The index ranks markets that are likely to attract the most FDI in the next three years.
“The ease of doing business, high cost of services, infrastructure, governance, institutions, and regulations. Those are the things that we need to fix.”
“Because if you look at our history in the last five decades, when the opportunities come, we missed the boat. Because we did not prime, we did not shape up.”
TRADE DEFICITMeanwhile, Mr. Baliscan said a widening trade deficit would also not be worrisome if the composition of imports would help spur growth, he added.
“Well, it’s double-edged. Of course, it increases the trade deficit, but it’s okay. If those are raw materials or capital equipment, then they should be good indications of a growing and robust economy.”
The country’s trade deficit widened $4.13 billion from the $3.46-billion gap in February and the $3.35 billion shortfall a year earlier.
This could also be reflected in the first-quarter gross domestic product (GDP) data, he added.
“The trade sector could have been hit hard by the slowdown which started in the beginning of the year,” he said.
“Although the net export is a relatively small component of the GDP, when the drop in the growth rate is quite large, then of course, it will pull down the overall growth.”
First-quarter gross domestic product data is set to be released on May 8. — Luisa Maria Jacinta C. Jocson